Home Sales Jeopardized as Flood Coverage Halted in Shutdown

(Bloomberg) -- Thousands of U.S. home sales are being held up because the federal government shutdown has halted the issuance of new flood insurance policies, a move that lawmakers and a Realtors lobby want overturned.

The Federal Emergency Management Administration stopped issuing new policies under the National Flood Insurance Program during the partial government shutdown, now in its sixth day. FEMA, which oversees disaster response, is part of the Department of Homeland Security.

FEMA's decision, announced Wednesday, was called “abrupt and ill-conceived” in a statement by Shannon McGahn, senior vice president of government affairs for the National Association of Realtors. She said the group estimates that as many as 40,000 home closings would be disrupted for each month new flood insurance policies can't be issued.

Lawmakers from both major parties joined insurers and realtors to rebuke FEMA. Republican Senator Marco Rubio of Florida and Democratic Representative Maxine Waters of California on Thursday called on the agency to resume issuing policies and renewing existing ones because on Dec. 21 lawmakers passed an extension of the National Flood Insurance Program until May 31.

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“I urge FEMA to immediately reconsider this harmful and incorrect interpretation of its authority and resume its important work of providing flood insurance to families across the country,” Waters, the top Democrat on the House Financial Services Committee, said in a statement.

Representative Bill Pascrell and Frank Pallone, both New Jersey Democrats, also urged FEMA Administrator Brock Long to resume issuing flood policies during the shutdown. In a letter to Long on Thursday, they wrote that the agency has caused confusion and uncertainty for realtors and borrowers, noting millions of homeowners rely on the program for coverage.

“Shuttering the NFIP prevents borrowers in flood-prone areas who are required to obtain flood insurance when acquiring a mortgage for a new home from doing so,” Pascrell and Pallone wrote in the letter. “Thus, we believe Federal Emergency Management Agency's decision to prevent new policies from being issued will create problems for the real estate market across the country.”

Rubio called on the White House's Office of Management and Budget to reverse the FEMA decision.

“I strongly disagree with this guidance as it incorrectly interprets congressional intent,” Rubio said in a statement.

The condemnations followed similar rebukes by groups representing the insurance industry after the decision to halt new policies became public.

A coalition of insurance groups including the American Insurance Association and the Property Casualty Insurers Association of America said in a statement that the “inability of FEMA to act as directed by our elected officials is disappointing” and urged FEMA to reverse the decision.

Calls to FEMA's press office reached a recording that said representatives were unable to return general press queries “due to the federal funding hiatus.” The agency said on its website that the National Flood Insurance Program would continue to process and pay claims on policies issued before the government shutdown until funds are exhausted.

“FEMA and Congress have never failed to honor the NFIP's contracts with policyholders,” FEMA said on the website.

To contact the reporter on this story: Ryan Beene in Washington at rbeene@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Elizabeth Wasserman, John Harney

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